IBM reducing direct PC sales in Europe

On the heels of a recent outsourcing decision, Big Blue will stop taking phone orders for PCs in parts of Europe, perhaps a further sign of disenchantment with the PC market.

17 January 200211:21 am AEDT

IBM is to cut back on direct PC sales in Europe when it stops taking telephone orders for PCs in four countries later this month. The company will instead refer individuals and small to medium-sized businesses to its channel partners.

The decision, announced in an e-mail to staff Tuesday, is seen by some employees as indicative of the tough competition IBM faces from Dell Computer in the direct-sales market. The e-mail came on the same day Big Blue announced its decision to outsource production of its NetVista line of desktop PCs. The NetVista PCs will now be manufactured by Sanmina-SCI under a three-year, $5 billion agreement.

The shift to outsourcing PC manufacturing is likely to have an effect on IBM's ability to build PCs to order, said analysts.

"When you outsource, you lose some control over your ability to configure individual systems," said Brian Gammage, principal analyst at Gartner. "But IBM sells large volumes to enterprise customers, and this run-rate type business works well when you're outsourcing," he said, referring to situations in which a lot of machines share the same configuration.

An IBM representative confirmed the decision, but denied rumors that the company is planning to pull out of direct PC sales altogether by February.

"We will still be selling direct," said the representative, "and we are still doing Web sales." But, the representative said, if an individual or a small to medium-sized business phones IBM now to buy a PC, that party will be referred to a reseller.

The rollback applies to the United Kingdom, Germany, France and Sweden, where IBM has been selling PCs over the phone for two years. "We found that small and medium businesses preferred to buy through resellers, and to rely on them for support," said the representative.

Affected telephone-sales staff will be moved to large accounts that focus on enterprises.

Peter Foster, principal at analyst firm Ovum Holway, said the shift in focus is in line with IBM's wider ambitions.

"Given how tight the PC market is, and given IBM's continued push into the services sector where it has said it wants most of its revenue to come from in the future, I'm not surprised to see them chipping away at less profitable operations like this," Foster said.

"They will probably stick to the cheapest way of doing business, but the question is can they continue to compete in the PC market? I don't think they can," Foster said.